Twice as nice: Could London gold groups join forces for the greater good?

The possibility of the London Bullion Market Association and World Gold Council collaborating more closely to promote the development of London gold trading seemed less of an alien concept this week than before, with some saying it would be in the best interests of London’s financial sector for the two to join forces.

There has been talk in the market since the launch of a WGC initiative with five banks, still not publicly announced but well known in the market, followed by the LBMA’s “request for information,” that the two may collaborate. The WGC declined to comment.

The WGC represents the miners, thus firmly on the sell side, while the LBMA represents a variety of market counterparts, mainly refiners, and acts as a proxy regulator in an age of increasing audit trails.

The LBMA now owns the intellectual property of the London Gold, Silver, Platinum and Palladium Prices — the refined and digitized rebirth of the old telephone “fixing” processes or price discovery/benchmark.

Both entities in reality are in the game of selling gold, with the LBMA overseeing the good delivery list, another form of benchmark for gold bar standards.

One senior market source said that the best result for the market would be for the two to join to signify that London is working as one moving part towards evolution.

“The US has COMEX, China has the SGE, why would London want to be fragmented?” he said.

The five banks said to be working with the WGC are ICBC/Standard Bank, Societe Generale, Citigroup, Goldman Sachs and Morgan Stanley. The banks declined to comment.

The fear from the industry appears to be that whatever the WGC are proposing will be in its financial interests rather than in the interests of the actual London bullion market.

“They will be in it for the money,” said one trader.

“Regulators want everything moved to an exchange, London isn’t like that. It’s over the counter; interbank, bilateral. Why don’t the regulators look to hire more people from the industry who knows what is needed?” the trader added.

The big problem appears to still be that the market itself doesn’t know what it wants.

Still, a banker said there was no way he’d move into regulation, no matter how much it paid.

“I’ve heard it’s so dull,” he said.

The main reason for all of the change is the increasing governance of the markets aimed at improving both traceability and accountability.

Ross Norman, CEO of bullion broker and information provider Sharps Pixley, said via email: “Where it would make sense is in so far as each addresses a completely different constituency within the bullion market; the miners at the WGC and the professional market, refiners and others at the LBMA. On the other hand, they each have very different modus operandi and cultures and I could see difficulties in bridging that gap.”

Others suggested the same, that perhaps where the clashes would come from would be inside each organization.

Some sources close to the situation firmly believe such a partnership will never happen.

“I just don’t know if it would work with the personalities involved,” another source said.

Still, a strategist was more positive on the benefits, saying “the WGC has offices the ground in Asia. It could expand the LBMA’s reach.”

A trader agreed: “It makes sense for them to join forces, but whether or not it will happen is the $64,000 question.”

The LBMA is due to update the market November 16, although this is likely to be a simple outline of respondents rather than a glimpse at the future of the market.

Those widely touted to be interested are CME Group, the London Metal Exchange, ICE and a handful of technology companies including EBS [part of brokerage ICAP], Autilla, itBit and Trioptima.

The LBMA and the companies declined to comment.

Overall the market seems still seems divided on the winner of a tie-up between the LBMA and WGC, although more voices are starting to suggest that at least it would prove London is on a steady footing in whatever changes take place.

An LBMA/WGC merger “is the best answer to send a message to the global market,” said one source.

AUTHOR BIO

Ben Kilbey,
Managing editor, precious metals

Managing editor, precious metals

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Comments

Ronan at November 16, 2015 06:36

Apart from Ross Norman, all of the sources and quotations in this article are anonymous. “A senior market source”, “a trader”, a “banker”. Financial jornalist shouldn’t have to be some type of game of Cluedo. Who are these three sources and how mush independent corroboration has been applied to each of these sources? Why aren’t these three sources comfortable in going on the record with their views. The entire discussion of the article is undermined by using these uncompletely unverifiable attributions.